Labor regulations in developing countries : a review of the evidence and directions for future research

This paper focuses on minimum wages (MW), mandated benefits (MB), employment protection legislation (EPL), and unemployment insurance benefit systems (UIB). Even though different institutions might try to accomplish the same goal(s), the mechanisms through which each regulation interacts with market forces and affects the behavior of workers and firms are different. Although the focus of this paper is on the effects of labor regulations in developing countries, the author's refer to the evidence from developed countries where relevant, especially when no evidence from developing countries is available; and the author's believe the theory or methods could be fruitfully applied in the study of developing economies as well. This paper builds a search and matching model, estimates its structural parameters, and uses the estimates to determine the unemployment and welfare effects of the minimum wage. This structural approach allows one to estimate the total (workers and employers) welfare effect of a policy, which is arguably the most relevant metric to evaluate a policy intervention.